State of Private Equity? (Temperature Check)
Trying to make some really important choices in life and am trying to get the most information before i make these decisions. I was wondering what the state of private equity is, it seems that the consensus is that alot of PE is becoming commoditized and its becoming harder to differentiate fund strategies to LPs which makes fundraising harder and on top of that it seems theres too much dry powder and not enough deals to invest in. Ontop of this high interest rates seems to be eating the returns that come out of traditional LBOs so its becoming harder to be profitable. While it seems that jobs at MFs that have been established seem like stable jobs that are past there prime yet can still yield vast wealth it also seems that due to the facts above its alot more difficult if not possible to be an entrepreneur in this space and your kinda SOL because the bus is gone. Any corrections to the above info or any other insight would be greatly appreciated!
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Well, its Friday afternoon and I can't leave yet, so I'll take a stab at deconstructing your wall of text.
Sounds like you are already pretty convinced that PE investing is commoditized. I am not going to try and change your opinion on that, because I think people are very aware that this industry, and dare do I say finance altogether is not nearly as lucrative as it once was. Especially right now there are a lot of dynamics in the market that are fundamentally make transactions harder. However, I do think that people understand when choosing a career in investing, you are going to hit a few home runs, a whole lot of single and doubles, and you probably will strike out too.
On a more micro level, I think there is absolutely still a case for spending a few years as an associate and developing an "Investor" mindset. If your firm is doing it correctly you will get a great view, of transactions, operations, financing, and some legal issues. Which, will equip you well in any other role you take on. Whether you choose to use it or not, that's up to you.
Bit of a rant but here's some stream of consciousness thoughts:
Net net, I still think starting your career at a good PE fund is definitely worth it. The mindset you develop is awesome for future endeavors, the money is obviously great, and you develop a solid network amongst your class. The option value is great as well. Many PE shops will carve out a portco role for you after your Assoc. years if you raise your hand, you can do a HF, set up well for B School, etc.
As for me - I'm coming to the end of 3 years at a UMM/MF type shop. Has been an OK experience thus far - I haven't gotten destroyed with work, and have been a bit more portco. focused, but still closed a few deals. I'm planning to leave in about 2 months and join a more focused strategy of PE fund that touches on a space that historically hasn't taken much private investment, but is beginning to change that. Upfront comp is a bit lower, but hoping it's a place that will have some outsized growth akin to the modern MF's 20 years ago.
It’s all commoditized bruh. Banking, PE, consulting, HFs. Who cares? They’re all here to stay. Like with all cycles, now that the ZIRP days are over the wheat is going to stay and chaff is going to blow away.
The success of PE was driven by a 40 year declining rate environment. Returns will come down, managers are commoditized, yet it’s still worth 2-3 years of your career. Not sure about the long term, but a valuable experience.
Can use this experience to buy or start your own business, which is the ultimate end goal
Personally have started to see funds expand to non traditional PE plays. Going forward, returns will come down in cookie cutter PE industries. Will be interesting to see how far firms push their mandates in response to generate alpha
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